tv Nightly Business Report PBS August 20, 2012 6:30pm-7:00pm EDT
>> this is n.b.r. >> tom: good evening. i'm tom hudson. with europe in turmoil, and china's economic engine losing steam, u.s. markets, are looking stronger, despite today's sluggish trading. >> susie: i'm susie gharib. we head to johnstown pennsylvania, where small defense contractors, are preparing for the fiscal cliff. >> tom: and the largest futures exchange in the u.s., the c.m.e. group, looks to start its first foreign exchange overseas. >> susie: that and more tonight on "n.b.r."! >> tom: by one measure, the u.s.
market stocks continue trading near barely budged today, as many investors remain concerned about europe, and wait for economic data later this week. the dow closed down 3.5 points, while the s&p finished virtually unchanged. the nasdaq slipped less than a point. but all three major indexes remain near their highest levels in more than four years. so why is the u.s. market doing much better relative to many other global markets? erika miller reports. >> reporter: the u.s. clearly has its problems: weak economic growth, massive debt, and political dysfunction. but for many stock investors these days, buying american is far more appealing than the alternatives. >> if you take a look at the us economy, we've seen it's been very resilient in the face of all these uncertainties. we've seen 12 consecutive quarters of positive economic growth. you take a look at the u.s., and although it's not necessarily growing at the pace we'd like it to be, it's certainly doing better than europe. >> reporter: the performance of world markets the past six months tells the story.
the s&p 500 has gained about 4%. global stocks-- as measured by the morgan stanley europe australia far east index-- are down 5%. emerging markets are faring even worse. >> for all the wonderful things we can say about emerging markets, they are also very cyclical. and, so to the extent there are uncertainties or concerns about the developed world, it is certainly going to spillover into the emerging world-- the fact that their equity markets are just far more volatile. >> reporter: as a result, many investment strategists recommend investors focus on u.s. domestically-oriented stocks, with stable growth, and reliable dividends. >> a lot of these domestically- oriented companies have high dividend yields. in particular, utilities, as well as telecom service companies. they pay a very nice dividend yield and really don't reach too far beyond the u.s. borders. >> reporter: buying only american stocks goes against conventional wisdom that the safest place to hide from market turbulence is in a well- diversified portfolio, spreading investments across the globe.
many strategists say its a mistake to bail on europe and emerging markets entirely. >> i would say you probably don't want to exclude those areas altogether. but rather be very, very selective. you, in a sense, need to be in it to win it, and the thought being that if you can focus on higher quality, low volatility issues, possibly you can be able to ride out the storm. >> reporter: but for now, many investors are playing it safe, keeping their investments close to home. erika miller, "n.b.r.," new york. >> susie: jeff saut expects u.s. stocks to continue their march higher. he's chief investment strategist at raymond james. jeff, nice to have you back. what do you think is the catalyst that's going to take stocks higher? >> i think the earnings continue to come if better than expect. the revenues have been a little light but the earnings continue to surprise people on the upside. i think that the world is profoundly under invested in u.s. equities. if you sit on some of these
endowment fund boards su have all these consultants coming in. and they're telling you to buy emerging market, emerging market, they're telling you to buy everything but u.s. stocks. so i think that you'll be in a position where the professional investor will have to chase stocks on the upside. >> susie: we do know that there is a lot of cash sitting on the sidelines whether it's from the professionals or individual investors. but investor sentiment is horrible. and volume is very low. so again, was's going to drive it higher? >> well, volume has been low. these are the big two vacation weeks of the year. i'll be interested to see what happens after labor day but if you pars the numbers the onbalance volume has been on the upside, not the downside. and i think that the continuing momentum in earnings are going to continue to leave the estimates for this year 102 and 103 on the s&p and they're nestled around 115 for the s&p earnings next year. if you put any kind of multiple on that, stocks
look pretty attractive given the alternative. >> susie: uh-huh. but you know, and i'm sure you hear this a lot. there are a number of people who are saying once the summer doldrums are over and investors come back and the big players come back we will see stocks go in reverse. some are saying there could be a major correction in the stock market especially between now and the election. your thoughts on that? >> well, the election pattern has been playing pretty much as accepted-- anticipated. since 1936, if you look at the pattern of the s&p 500, we're following it to about a 98% corelation. and that implies that we rally up until the first or second week of september and then you get a correction. not a big one but you get a correction going into the election. and then no matter who is elected you get a post-election rally after tham. that's the way it is playing so far. i think that's the way the rest of the year plays. >> another thing, jeff, is that a lot of the markets are hoping that the federal reserve is going to do
something to take some kind of action. what if the fed, first of all, do you think the fed will do something. and second of all if it doesn't, what does that mean for the markets. >> i thought the federal reserve would have a policy statement change in the last meeting. like the supreme court didn't want to be viewed as too political. that's why rock erts switched side tess nth hour to try and maintain the integrity of the court. i figured that the federal reserve didn't want to be viewed as too political and they would make a policy change last meeting and they didn't. so i don't think you're going to get one out of the jackson hole meeting. and i don't think you will get one out of the september meeting. because i think it will be viewed as too political. that said i don't think they will make a policy change because the recent economic systems have been coming in on the stronger side, not the weaker side. >> we're going to see a lot of economic statistics this week. we have new-home sales, durable goods ordered. we also have the fed minutes that come out tomorrow. what do you think the message of those numbers are going to be and what does it mean for the markets.
>> i think one of the messages of the market is you have a turn in the real estate market here. the two sectors that usually pull you out of a soft spot has been autos and real estate. autos have done their job and just now in the past 6 to 7 months you're starting to see a pickup in real estate. in st. petersberg, florida, transactions are up 6 or percent and pricing 8 to 10% and i think will you see that to be a bunchonning story in the coming quarters. >> all right, jeff, thank you so much. ways great talking with you. appreciate you coming by. >> jeff investment strategist at raymond james, jim saut. >> susie: still ahead, tonight's word on the street: participation. the street.com's jill malandrino tells us why she thinks smaller investors have not missed out on wall street's slow grind higher. >> tom: another bad report card out today for the u.s. corn and soybean crop. the government said crop conditions stayed pretty much the same from a dismal report last week. diane eastabrook has more. >> reporter: even though cool weather and rain have finally blown into the midwest it's too
late to salvage the corn crop ravaged by drought. the u.s.d.a. said late today more than half of the u.s. corn crop is in either very poor or poor condition; no change from last week. 37% of the soybean crop was in similar shape, a small improvement from last week. because farmers got crops into the ground earlier last spring and temperatures have been abnormally high, corn has matured earlier than normal. meteorologists are forecasting more dry weather over the next ten days, so that will likely lead to an early harvest. some corn farmers who have filed crop insurance claims are already chopping up their crop for livestock sileage. farmers were expected to harvest close to 15 billion bushels of corn this fall, but the government recently cut that estimate to less than 11 billion bushels. if the drought continues, getting that grain to foreign markets could be tough. low water levels on the mississippi river have forced the u.s. coast guard to put navigation restrictions on some
portions of the lower mississippi. diane eastabrook, "n.b.r.," chicago. >> tom: by now, you've probably heard of the fiscal cliff, the spending cuts and tax hikes that go into effect this january if there is no action by congress. while economists say the cliff would solve our national debt problems over the next decade, it might also throw us into a recession. all this week, we're taking a close look at the fiscal cliff and what's at stake. tonight, sylvia hall tackles the defense budget, which faces $500 billion in cuts, and what's at risk for the nation's defense industry.
>> reporter: in the early 20th century, johnstown, pennsylvania thrived on steel. with those days long gone, much of this economy has found new life in the u.s. defense industry. j.w.f. industries stands on the site of an old bethlehem steel mill. where workers used to stoke furnaces and weld iron, the 400 employees cut, bend, weld, paint, and assemble high-tech radar systems, vehicle armor, and other equipment for the military and its contractors. c.e.o. bill polacek says it's a re-invention in jeopardy. >> our defense business is about 50% to 60%. if sequestration takes effect, we see that going down rapidly. problem with that is, when you cut 20% of a budget, the big companies will pull the work in, and they'll give less to small businesses. >> reporter: he says already, orders from big defense companies are down this year. he estimates that if congress doesn't avert the sequester,
he'll ultimately lose up to 60% of his annual profits. and he'll have to lay off about 100 workers. >> we've done a very good job of diversifying our economy, and the biggest diversification is the defense industry. and anywhere from engineering jobs to manufacturing jobs. and you cut those jobs out of this area, you are going to have a lot of people that not only lose their job, they have no hope to find another job, because they just can't find one in small town america. >> reporter: the people who live here worry that manufacturing layoffs will spill over to other sectors. >> it wouldn't necessarily be that wide-spread throughout the economy, but then again you always have the ripple effect so one job lost in the manufacturing sector could then in turn impact wholesale trade, retail trade and even healthcare. so, at a very base line level, you're looking at some impact to
about 10% to 20% of the economy and then radiating out from there. >> reporter: the defense industry has been preparing for cuts for a while now. other small contractors in the region are already seeking more commercial work. but the transition isn't easy. for this small subcontractor, it's meant a whole new operation, and different types of employees. if the defense industry picks up again, it will have to switch back. >> it's taken us over a year to switch from an engineering company to a manufacturing company along with that year and along with that time there's been a major recapitalization that we've had to hire different skilled different skills of people we've actually had to lose we've lost a software engineer. >> reporter: here in the johnstown area, the small defense contractors say their businesses, and many of the community's jobs, are now in the hands of congress. >> everything i've worked for, everything everybody worked for, in 25 years of business that we're celebrating this year, could all be for naught, only because the people in congress,
and the senate, can't vote to do what's in the best interest of the american people. >> reporter: congress has until january to find a new plan and avoid the sequester. but in this election year, hopes are low for a quick solution. sylvia hall, "n.b.r," johnstown, pennsylvania. >> tom: joining us now, washington bureau chief darren gersh. darren as we mentioned, all this week, we're looking at the fiscal cliff and what could happen come january, what's the biggest threat? >> that it will happen. but also i think the biggest threat is that it's kind of happening now. that people aren't sure what's going to happen to businesses. they're starting to look at the fourth quarter and first quarter and they're saying how much are my taxes go og to go up. you know, are consumers going to have any money left. what is going to happen to the economy. i think that uncertainty is bad right now. then there's the sense that its he going to hard to plan for a couple months. if it's hard to plan your tax for a couple months, why not put it off.
>> with that in mind, congress clearly has put it off. a recess for the political conventions, the general campaign, general election campaign picking up steam after labor day. is there any movement on capitol hill toward avoiding the cliff? >> here's what i think. there's a decent chance that will happen. the estimates we've heard are like everything, you know, you throw everything in the cliff and how big is it going to be. but if you start to look at the individual pieces like the alternative minimum tax, and which is big, about 100 billion a year f it's not indexed to inflation to keep middle class people out, congress has always fixed that often at the last minute. i think it's a good bet they will fix it this time, make this cliff a little less steep. >> what happens if we do go off the cliff? >> that is a very good question. it looks like the betting is we would fall into a recession, that's something that i asked erskine bowles and senator allen simpson
from wyoming, the two co-chairs of the simpson bowles deficit reduction commission. i asked them about just this topic. what happens if we go off the cliff. here's what they had 20 say. >> if we do nothing by the end of this year, the negative impact on economic growth in 2013 will be enough to throw us back into a recession. >> the greps hurt the most will be the little guy who is fast asleep now while the party people babble on both sides on how much they care for that poor old soul. >> so they both think that there is a good chance that we will go off the cliff and that the fall could be pretty steep. ironically the steep fall will be what forces congressmen and senators to get real about this and solve the problem. >> we've got coverage all this week long led out of washington with our bureau chief darren gersh. thanks for joining us. >> thanks,
tom >> susie: the largest u.s. futures exchange is looking to expand across the pond. chicago's c.m.e. group says it has started the paperwork with regulators in the u.k. to launch a london-based derivatives exchange. the c.m.e. says the move is all about growing its international customer base amid slowing u.s. trading volumes. the expansion is also seen as a game changer for the european market: >> i think, yeah, it will certainly ratchet up the competition in europe, i think you'll have to keep an eye on things like pricing, what kind of products the exchanges are offering, what kind of liquidity those products are offering, and that sort of thing, i think the competitive picture in europe
will definitely continue to evolve as a result of this announcement. >> if it get as proved the cme says the exchange will be up and running by the middle of nextier and focusing on currency future. >> we saw the stock move slightly lower today on really kind of a flat monday overall here, sussy, let's get under way with our market to kuchlts tonight's "market focus." >> tom: early losses today for the major stock indices werek. pared back throughout the session, ending flat. with no major economic date today, it was a narrow trading range for the s&p 500. the index hit its low for the day in the first 90 minutes of trading, before closing essentially unchanged. trading volume was 549 million shares on the big board. just under one and a half billion shares on the nasdaq. telecommunications suffered the biggest drop among the top big stock sectors, down 0.8%. consumer discretionary fell
0.5%. pushing the consumer sector lower were two big retailers. best buy and lowe's. for best buy, the sell-off greeted today's announcement of a new c.e.o., hubert joly. joly does not have retail experience. he was the c.e.o. at carlson, the company which owns the raddison hotel chain and restaurant t.g.i. friday's. he's scheduled to take over early next month. shares fell 10.4% on heavy volume. the drop takes shares to their lowest level since early august when founder richard schulze announced an effort to take the company private. today, the company announced the hiring of joly. schulze said he was disappointed buyout takes have ended. meantime, it's slow going for the renovation at home improvement retailer lowe's. the company has been working to better compete with home depot. quarterly earnings were a nickel less than the average analyst estimate, and they were down from a year ago. the results were held down by fewer promotions in may, slower shopper traffic on memorial day weekend, leading to bigger price
cuts to move merchandise. that hurt profit margins. shares fell 5.8% on heavy volume. lowe's cut its financial outlook for the rest of the year, even as august sales have picked up. healthcare continues seeing merger activity as the insurance industry looks to diversify and grow. health insurance provider aetna is the buyer, offering to purchase coventry health for $5.7 billion in cash and stock. based upon tonight's closing prices, coventry shareholders would get $42.08 per share based upon friday's closing prices. both stocks found buyers. the target, coventry shot up more than 20%, closing just below the implied purchase price. as a sign of encouragement, the buyer, aetna, jumped 5.6%. this is aetna's first closing over $40 per share since late june. if the deal closes, it would expand aetna's business in the medicare and medicaid health programs. industry consolidation has
picked up since the supreme court upheld the health insurance reform law. another milestone for apple, the most valuable publicly traded u.s. company ever. with today's 2.6% rally, apple sits at a new all-time high. this closing price gives apple a market value of $623,500 billion. in 1999, microsoft's market value topped out at $616 billion. a mixed finish for the most actively traded e.t.f.'s. the russell 2000 and emerging market funds were both lower. and that's tonight's "market focus."t
>> u.s. stock market gauges may be near post session highs tonight but this raleigh has come on lower trading volume. let's face it, less investor confidence in the stock market overall, that bring us to tonight's word on the street, preparation. jill malandrino back with us. jill, if an investor hasn't participated have they missed the move? >> i think what you need to focus on is not mission the pov but focusing on key sectors and companies. and what i am calling the haves and have nots. companies that are continuing to add cash to the balance sheet, grow in
key areas, management is executing on all metrics and the returning that cash to their investors drya dividends or share buybacks. >> one of those that fits that characteristic someone su have spoken about before on nbr, ibm, big blue, 200 and change here tonight. what makes you call this one a have. >> i think megacap tech in particular has really outshined in 20126789 ibm is a name i love. up 14% year-to-date, 46% year-over-year. management has increased its dividend by 13% in just this year alone. and being 200 billion in market company they're still focusing on growing, investing a significant amount of cash in their analytics business which is one of their largester growth spaces this could go to 225 which say nice 12.5% upside to where we are right know. >> what kind of time frame for that move from 200 to 225. >> i was looking 6 to 12 months. .rm trading.d consider that in 6 months.
>> in today's market when people are doing those quick swing trades. >> that's true, six months could be a lifetime. also high-end retail, michael kors has been a winner, the very few ipo in the past year since december, the share price has more than doubled, just a little over 2-- what is your outlook for michael kors. >> there is why i'm excited to talk about this name because the ipo market has stunged investors, facebook, zynga, great big flops but kors, lux row brands have owned in in 2012. management is acting really well here. i think you have the brand recognition where it will continue to see some growth. think about it, it's only been trading since december publicly so analysts still haven't caught up with their estimates in the full cycle. i think will you see the multiple come down just a little bit in the name that deserves to be rewarded with that little bit higher of i multiple. >> with that idea what about a price target for michael coors over the next 6 to 12 months. >> i think you have 15% upside, going to about 60,
in 6 to 12 months, then back to school and also the important christmas season coming up so i think is a nice catalyst. >> don't remind us. the holiday is right around the corner already. do you own positions in either ibm or michael korses. >> no, i'm restricted. >> jill malandrino tonight with thestreet.com. thanks, jill. >> reporter: coming up tomorrow on "n.b.r.," we'll tell you how this three year old firm is changing the face of financial services. >> susie: prices at the gas pump keep going up, they've increased by almost $0.30 in the past month. triple-a says prices today hit a fresh high of $3.72 a gallon on average. just one month ago, the national average was $3.45. consumers in california and oregon are paying much more: above $4 a gallon. >> susie: and we end tonight, with a barrier broken in the sports world. the augusta national golf club, has admitted its first female members. the 80 year old club, which is home to the masters golf tournament, today named
financier darla moore and former secretary of state condoleeza rice as members. the women join the club, after a dust up this spring, when long- time tournament sponsor i.b.m.'s new c.e.o., virginia rometty was not invited to join. augusta had offered membership to i.b.m.'s previous c.e.o.'s. tom, augusta president billy payne will present the women with the club's iconic green jackets this fall. and i say, it's about time. >> congratulations to them. >> right, and we saw at the olympics it as a big deal that women were finally participates in every single activity. so a lot of barriers still in the sports world and in the business world. >> and these two-- these two women leaders will get the green jackets in the fall. >> well that's it for us tonight. nightly business report for this monday, august --.
have a great evening, everyone. you too, tom. >> you as well, susie. we have more on the web site, visit us at nbr.com and back on the broadcast tomorrow night. captioni sedponsor by wpbtns captioned by media access group at wgbh access.wgbh.or >> join us anytime at: www.nbr.com. there, you'll find full episodes of the program, complete show transcripts and all the market stats. also follow us on our facebook page at bizrpt. and on twitter @bizrpt.